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+Chapter 2: Covered Call Writing 79 
+another near-term call to continue taking in short-term premiums, or perhaps write 
+a long-term call at that time. 
+When rolling down into the near-term call, one is attempting to return to a 
+potentially profitable situation in the shortest period of time. By writing short-term 
+calls one or two times, the writer will eventually be able to reduce his stock cost near­
+er to 15 in the shortest time period. Once his stock cost approaches 15, he can then 
+write a long-term call with striking price 15 and return again to a potentially prof­
+itable situation. He will no longer be locked into a loss. 
+ACTION TO TAKE IF THE STOCK RISES 
+A more pleasant situation for the covered writer to encounter is the one in which the 
+underlying stock rises in price after the covered writing position has been estab­
+lished. There are generally several choices available if this happens. The writer may 
+decide to do nothing and to let his stock be called away, thereby making the return 
+that he had hoped for when he established the position. On the other hand, if the 
+underlying stock rises fairly quickly and the written call comes to parity, the writer 
+may either close the position early or roll the call up. Each case is discussed. 
+Example: Someone establishes a covered writing position by buying a stock at 50 and 
+selling a 6-month call for 6 points. His maximum profit potential is 6 points anywhere 
+above 50 at expiration, and his downside break-even point is 44. Furthermore, sup­
+pose that the stock experiences a substantial rally and that it climbs to a price of 60 
+in a short period of time. With the stock at 60, the July 50 might be selling for 11 
+points and a July 60 might sell for as much as 7 points. Thus, the writer may consid­
+er buying back the call that was originally written and rolling up to the call with a 
+higher striking price. Table 2-24 summarizes the situation. 
+TABLE 2·24. 
+Comparison of original and current prices. 
+Original Position Current Prices 
+Buy XYZ at 50 XYZ common 60 
+Sell XYZ July 50 call at 6 XYZ July 50 11 
+XYZ Jul 60 7 
+If the writer were to roll-up - that is, buy back the July 50 and sell the July 60 
+- he would be increasing his profit potential. If XYZ were above 60 in July and were 
+called away, he would make his option credits - 6 points from the July 50 plus 7